Global Economic Crisis on the essay

  • Length: 25 pages
  • Sources: 20
  • Subject: Economics
  • Type: essay
  • Paper: #88136701

Excerpt from essay :

To an average individual within the United States however, the relevance is reduced, with importance only for gathering general knowledge on the country. The jurisdiction of the analysis expands as far as the data is available and does not constitute intrusion on matters of national secrecy.

2. Review of Literature

2.1 Research Tools

The primary tool to be used in the answering of the posed questions is that of conducting research. This tool is based on the analysis of the available information in order to find answers to the posed questions. Based on the sources used in conducting the research, the methodology can be categorized into four main areas:

Primary research -- meaning the analysis of primary information, or that coming directly from the players in the Nigerian business environment.

Secondary research -- or the analysis of information generated by secondary parties, mostly organized in international players that do not directly conduct operations in Nigeria, but which assess the environment's features. Such sources could include economists specialized in international affairs or international organizations assessing global trends, such as the Word Trade Organization or the International Monetary Fund.

Books and peer reviewed research -- this category of research operations is based on the analysis of book and articles in specialized magazines. While the author of this paper will also focus on these sources of information, the current issue of the economic crisis in Nigeria is a relatively new issue and books on the topic have yet to be written. However, relevant information has been found in terms of historical events.

Finally, the last category of research is based on the analysis of articles on the internet. This type of analysis has numerous points of commonality with the previous three types of research in the meaning that peer-reviewed articles, book fragments, as well as primary and secondary information can often be found online. However, the internet provides the user with a multitude of amateurish articles. These can also be found of value, but one has to remember, with all types of research, to consult more resources in order to form an objective and unbiased opinion.

2.2. Historical Background

The Nigerian business environment has been greatly influenced by the British occupation to which the country had been subjected. Following political and armed conflicts, the country managed to gain its independence, but remained far from stability. The lack of an adequate legislation and a strong civilian government took their tool on the business environment, making it weaker than the international average. Rich in natural reserves of oil, the African country has always constituted an interesting destination for foreign entrepreneurs, but an actual business development was historically discouraged by high levels of corruption, poor infrastructure as well as a poor ability for micromanagement.

The first examples in this sense were obvious as early as five decades ago, when the Nigerian women, without jobs in companies, would occupy almost exclusively of the manufacture and trade of textiles. The large majority of these women were illiterate, but they were striving to offer their children better lives; would send them to schools in Europe and would build for them European-like houses (Little, 1973). These women were extremely competent at conducting the textile manufacturing and trade operations, but the scarcity of the resources, the bad roads and conditions of transporting the textiles, combined with barely existent political support, took a tool on the Nigerian textile operations, leading to their gradual demise.

During the 1980s, the government took action in order to restore political and economic stability. They aimed to do this through the implementation of the Structural Adjustment Plan (SAP). With its strategies to reduce the value of the national currency, the endeavor has however given birth to more limitations than advantages. To the business community, it meant that their financial resources were devalued, allowing them decreased abilities to conduct their operations, including the training of their staff members or the purchasing of the required commodities from outside the country. "Most small businesses could not afford to train their workers, and manufacturers found it difficult to obtain foreign exchange to order or purchase machinery and spare parts. There is also the problem of frequent harassment by government officials who extort money from the businesses. Poor infrastructure, including bad roads, inadequate water shortage, erratic electric supply and a poor telecommunications system are additional obstacles. Lack of these facilities cost most firms higher overheads because they have to be responsible for obtaining such facilities at their own expense" (Mambula, 2002).

But not only international businesses were interested in the local oil reserves, the Nigerian officials had also almost exclusively focused on exploitation and trade of oil and oil-based products. As this industry flourished then, others were barely existent. The situation was highly common during the reign of the military forces, which failed to diversify the operations handled by the business environment, leading to a situation in which 95 of the trade income was generated solely by oil based activities, which also accounted alone for 80 of the GDP. In the 1990s, major movements against oil exploitation became common, with the most representative one being the 1994 and 1995 MOSOP, or the Movement for the Survival of the Ogoni People. Despite the failure of the movement, oil related protests in Nigeria have since then gradually increased (Manby).

The international players took notice of the precarious situation in Nigeria as well as the country's business potential and the International Monetary Fund and the Paris Club offered the African country billion dollars in loans to be used on the development and implementation of economic reforms. In 2002 however, an analysis revealed that the Nigerian authorities had proven unable to reform the business environment and additional loan forgiveness from the Paris Club became impossible. A year later, the Nigerian government commenced operations to deregulate fuel prices. Additionally, they announced their intentions to privatize the four national refineries as well as developed and implemented their own version of the IMF's Poverty Reduction and Growth Facility program for fiscal and monetary management, in the form of the NEEDS, or the National Economic Empowerment Development Strategy. In 2005, the country convinced the Paris Club to accept a debt reduction in the amount of $18 billion in exchange for implementation of IMF regulations and subjection to thorough monitorization and control.

As a result, the government in Nigeria began to set the basis for a sustainable business environment which is based on the principles and orientation of a free market. "Since 2008 the government has begun showing the political will to implement the market-oriented reforms urged by the IMF, such as to modernize the banking system, to curb inflation by blocking excessive wage demands, and to resolve regional disputes over the distribution of earnings from the oil industry" (Central Intelligence Agency). Since the country's poor infrastructure is the main challenge in the path of a successful and competitive Nigerian business environment, current president Yar'Adua has committed to additional investments in infrastructure. Additionally, great emphasis is now being placed on developing more fruitful partnerships between the state's institutions and private players in order to improve electricity and roads (Central Intelligence Agency).

2.3. Model(s) and/or theories relevant to the research questions and hypothesis

The first theory at the basis of the analysis sees that the economic crisis has affected the entire globe and that it generated recurrent impacts from one country to the next. These general effects are succinctly summarized as follows:

lower rates of economic growth, reduced gross domestic product and even the threat of economic recession weaker financial systems and numerous situations of banking bankruptcies and takeovers, leading to a reduced trust in the financial sector and its intermediary role to support economic growth increasing unemployment rates crushes of stock markets; credit crunch and decreasing levels of liquidities (Soludo, 2009).

The second theory onto which the analysis of the Nigerian business environment will be based revolves around the main commodities a country exports -- in this case, the crude oil. The economic theory on the export commodities sees that as the price of the respective commodity will increase, the demand for it will decrease and the offer will increase. Vice versa, is the price decreases, the demand will most likely increase, whilts the offer will decrease. The price of exported oil is established within the international market based on demand and supply, with a major role being played by OPEC, or the Organization of Petroleum Exporting Countries. In terms of dependency upon a single export commodity, the theory argues that this is not advisable and that one country should diversify its production and trade in more goods from various industries in order to strengthen its competitive position within the international market but also to increase its levels of self-reliance and sufficiency.

Directly linked to the first model, the third theory sees that each country will strive to develop and implement strategies in order…

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